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End of Silk Road for drug users as FBI shuts down illicit website

Prosecutors arrest the alleged founder of Silk Road, an illicit online marketplace where users paid in Bitcoin virtual money.

By Stuart Pfeifer, Shan Li and Walter Hamilton

6:32 PM PDT, October 2, 2013

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For two years, the FBI tracked the elusive founder of Silk Road, an Internet site that peddled heroin, ecstasy and every known type of prescription medication.

The manhunt ended with the arrest of an unlikely suspect: Ross William Ulbricht, a 29-year-old former physics student from San Francisco.

Prosecutors on Wednesday described Ulbricht as a criminal mastermind who built an illegal drug empire that they estimated had $1.2 billion in sales over the last three years, earning him $80 million. Silk Road was the drug world's equivalent of EBay, acting as a matchmaker between dealers and buyers worldwide.

Authorities allege that the wrongdoing went far beyond narcotics. The site was also a marketplace for firearms, ammunition and computer hacking services. And Ulbricht was accused in separate complaints of paying for the attempted murders of two business associates who he believed had crossed him.

The arrest underscores the extensive use of the Internet by criminals who frequently mimic the legitimate business models of Internet retailers. Thousands of drug dealers advertised on Silk Road, and dispatched their products via U.S. mail. The site took a slice of each sale using the Bitcoin online currency.

QUIZ: How much do you know about the Bitcoin?

The person behind Silk Road is "the modern, electronic version of Walter White in 'Breaking Bad,' " said Michael Taylor, a computer science professor at UC San Diego who has followed the case. "People identify with that hero because he's very smart and innovative. At the same time, we disagree with his con."

The website required users to install special software that concealed their identity and location. That made it difficult for authorities to determine who was behind Silk Road, and helped keep the website going.

The Justice Department filed a criminal complaint accusing Ulbricht of conspiracy to engage in narcotics trafficking, money laundering and computer hacking. Prosecutors in Maryland separately accused Ulbricht of attempted murder for paying $80,000 to have a former employee killed.

Ulbricht, who authorities said was known by his Internet moniker "Dread Pirate Roberts," was arrested Tuesday by FBI agents in San Francisco and the website was shut down.

Though not widely known by the general public, Silk Road had an avid underground following among the drug crowd. It even has a Wikipedia page.

Silk Road was founded by Ulbricht in January 2011, according to prosecutors.

The site included a user's guide and a buyer's guide. It featured more than 13,000 advertisements for illegal drugs. The ads were for such products as "High Quality #4 Heroin All Rock" and "uncut crystal cocaine."

On his Facebook page and in YouTube videos, Ulbricht comes across as a clean-cut hipster fascinated by the Internet.

He indicated on the LinkedIn job-networking site that he had graduated from the University of Texas with a bachelor of science degree in physics in 2006. He said he attended graduate school in Pennsylvania.

In an Internet interview, he described a childhood growing up with hippie parents in Austin who refused to let him eat unhealthful food. He said he had dabbled in drinking and drugs. He repeatedly mentioned Eastern philosophy and an idea of "oneness" and living a harmonious life.

"I'm pretty sure I want to start a family," he said. "I want to focus more on being connected to people."

His Facebook photos depict Ulbricht's undergrad years as a scrawny teenager in glasses who liked to play beer pong and sketch in his free time.

But since then, he said on LinkedIn, his "goals have shifted" and he had adopted an antigovernment stance. His aim was to end "coercion and aggression" by creating "a world without the systemic use of force."

Ulbricht's alleged online alter-ego, "Dread Pirate Roberts," taken from the movie "The Princess Bride," cultivated a larger-than-life persona, bragging about his exploits and aggressively courting publicity.

Even as "Roberts" worked hard to avoid detection, he thumbed his nose at the authorities who were chasing him.

"Illegal drugs home delivered … and our cops are clueless," "Roberts" tweeted in June.

Ulbricht's arrest cast a shadow over Bitcoin, the Internet currency at the heart of Silk Road's business model.

Bitcoin is a fast-growing virtual money. It has been championed by antigovernment crusaders as a decentralized currency not controlled by any government. Two of its most prominent backers are the Winklevoss twins, best known for their fight with Mark Zuckerberg over the founding of Facebook.

Bitcoin can be obtained through online exchanges and is used to buy games and products from Internet merchants.

Critics have questioned its value and said it is frequently used as a currency for illegal transactions.

Silk Road is "basically an EBay for drugs and other illicit goods," said Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University.

In court papers, prosecutors allege that Ulbricht attempted to orchestrate two killings this year.

Ulbricht is accused of paying $80,0000 in February in an unsuccessful effort to have a former Silk Road employee killed for stealing from the company.

The hit man was actually an undercover law enforcement officer. Ulbricht allegedly wrote in an email that he wanted evidence of the killing. "Ask for a video. If they can't do that, then pictures," Ulbricht wrote, according to prosecutors in Maryland.

The undercover officers sent photographs of a staged killing, saying the employee died while being tortured.

Ulbricht allegedly responded: "I'm pissed that I had to kill him, but what's done is done.… I just can't believe he was so stupid. I just wish more people had some integrity."

Two months later, prosecutors say, Ulbricht tried to hire someone to kill a Silk Road user who was trying to extort money from him by threatening to disclose the names and email addresses of the site's users.

"In my eyes, FriendlyChemist is a liability and I wouldn't mind if he was executed," Ulbricht wrote in a private message to a potential hit man, according to the affidavit.

"I would like to put a bounty on his head if it's not too much trouble for you," Ulbricht allegedly wrote. "Necessities like this do happen from time to time for a person in my position."

When he was told the job would cost between $150,000 and $300,000, prosecutors say, Ulbricht responded: "Don't want to be a pain here but the price seems high. Not long ago, I had a clean hit done for $80,000."

They agreed on $150,000, which Ulbricht paid for in Bitcoin, prosecutors say. Officials have been unable to confirm the killing.

The Justice Department shut down the Silk Road website and seized Bitcoin with an estimated value of $3.6 million, which it called the largest-ever seizure of the virtual currency.

Ulbricht, who is being held without bail, appeared briefly Wednesday in federal court in San Francisco but did not enter a plea. He is scheduled to return to court Friday.

His arrest is a far cry from what Ulbricht pictured for his future.

Asked in a YouTube interview about what his life might be like 20 years into the future, he said, "I want to have had a substantial positive impact on the future of humanity."

stuart.pfeifer@latimes.com

shan.li@latimes.com

walter.hamilton@latimes.com

Times staff writer Chris O'Brien in San Francisco contributed to this report.